CORPORATE VALUES GUIDING THE WORLD’S LARGEST …

Working Paper WP-916 March, 2011

CORPORATE VALUES GUIDING THE WORLD'S LARGEST FAMILY-OWNED BUSINESSES:

A COMPARISON WITH NON-FAMILY FIRMS

Lucia Ceja Josep T?pies

IESE Business School ? University of Navarra Av. Pearson, 21 ? 08034 Barcelona, Spain. Phone: (+34) 93 253 42 00 Fax: (+34) 93 253 43 43 Camino del Cerro del ?guila, 3 (Ctra. de Castilla, km 5,180) ? 28023 Madrid, Spain. Phone: (+34) 91 357 08 09 Fax: (+34) 91 357 29 13 Copyright ? 2011 IESE Business School.

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CORPORATE VALUES GUIDING THE WORLD'S LARGEST FAMILY-OWNED BUSINESSES:

A COMPARISON WITH NON-FAMILY FIRMS

Lucia Ceja1 Josep T?pies2

Abstract

This paper analyzes formally stated corporate values; a key topic of concern in the field of family businesses. More specifically, the study contributes to the literature by enabling a deeper understanding of the differences and similarities of the corporate values at the foundation of the world's top 100 largest family-owned and non-family-owned businesses. According to the study findings, the values of integrity, respect, and customers are the top three most-mentioned values in both family-owned and non-family-owned companies. Likewise, there are distinct values that are mentioned often by family-owned firms and seldom or never by non-familyowned businesses. These values tend to be more people-oriented, emphasize collectivity more than individuality, and support a long-term perspective and a sense of stewardship and responsibility toward the future of the family and the community in which the business operates.

Keywords: family-owned firms, corporate values, positive psychology, family-business values.

1 Researcher, Chair of Family-Owned Business, IESE 2 Professor, Strategic Management, Chair of Family-Owned Business, IESE

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CORPORATE VALUES GUIDING THE WORLD'S LARGEST FAMILY-OWNED BUSINESSES:

A COMPARISON WITH NON-FAMILY FIRMS

Introduction

One of the topics of concern in business management is corporate values ? principles of behavior ? that determine the kind of behavior that will be acceptable or unacceptable in a specific organization. Corporate values have been associated with a wide variety of workrelated constructs, such as work motivation (Locke, 1991), organizational virtuousness (Cameron, 2003), job satisfaction (Locke, 1976), organizational citizenship behavior (Feather and Rauter, 2004), positive team dynamics (Dose and Klimoski, 1999), and organizational commitment (Meyer, Irving, and Allen, 1998). Values are essential to understanding the meaning that employees place in their work (Nord, Brief, Atieh, and Doherty, 1990) and the fulfillment they derive from the alignment of the organizational values and their own value system (Park and Peterson, 2003; Rounds, Dawis, and Lofquist, 1987). Contemporary organizations have realized that they live in a highly complex environment inhabited by knowledgeable employees, for whom managerial practices based solely on financial reporting and hierarchical control systems are no longer sufficient and, in some cases, counterproductive (Pruzan, 1998). What contemporary organizations need to do is recognize and acknowledge the values that the organization shares with its stakeholders; in other words, values have become a critical management tool in the post-industrial economy (Anderson, 1997; Pruzan, 1998). In sum, contemporary organizations require values-based management that inspires employees, while also serving as a source of identity and pride for the organization's members.

Family-Owned Businesses and Corporate Values

Values-based management is an area in which family-owned firms have excelled for years (Denison, Lief, and Ward, 2004; Gallo and Cappuyns, 2004; Hall, Melin, and Nordqvist, 2001; Ward, 2008). Due to the overlapping of family, management, and ownership in these firms (Astrachan, Klein, and Smyrnios, 2002; Gersick, Davis, McCollom, and Lansberg, 1997), corporate values are especially important, as a family-owned firm's intertwined nature implies that strong family values held by the founding family are likely to be transferred and transmitted to the business (Ward, 2008). Hence, the family's value system is often aligned with

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the value system in the business. A family's internal understanding of their values strongly determines the kind of behavior that will be acceptable or unacceptable in their organization. The owning family's value system drives their key decisions regarding issues such as business strategy, organizational structure, corporate culture, governance, owners' commitment, and leadership style (Gersick et al., 1997). Family values also direct the family's approach to the stewardship of assets and affect their attachment to the family legacy, which in turn helps to establish a sense of identity and commitment to the family business. Likewise, family values dramatically determine how the family business is governed, and, most importantly, shape the family members' commitment to the firm.

Ward (2008) found that the corporate values at the foundation of family firms' culture are different from those encountered in non-family corporations. More specifically, the corporate values in family-owned firms tend to be more oriented toward people, as opposed to focusing exclusively on financial profits. According to the Ward, this difference is instrumental in shaping the stakeholder approach found in the culture of most family-owned firms. With the stakeholder perspective, characterized by a focus on employees and high organizational commitment (Zellweger and Nason, 2008), family firms seem to have substantially greater investment in the development of their employees compared to non-family firms (Denison et al., 2004) and more strongly emphasize positive behaviors than other organizations (Dyer, 2003).

Although it would appear evident that the corporate values at the foundation of family firms' culture are different from those encountered in non-family corporations, a critical examination of the literature suggests that there is little research regarding the influence of the family and non-family contexts on the values espoused by both types of organizations. Consequently, various researchers have called for an exploration of how differences between family and nonfamily contexts affect the cultures found in these types of organizations (Chrisman, Chua, and Sharma, 2005; Ward, 2008). This research study answers this call, with the purpose of providing a deeper understanding of the differences and similarities of the corporate values at the foundation of family and non-family companies.

The Concept of Value

The literature on corporate values is very wide and, therefore, values are defined in many ways. Nevertheless, the seminal work by Schwartz and Bilsky (1987, 1990)1 established a number of principles that have contributed to the foundation of accepted theory concerning corporate values. Hence, in the present study, we were guided by the recent work by Ceja, Agulles, and T?pies (2010), based on the seminal work by Schwartz and Bilsky (1987, 1990), in which they expanded the definition of value because things such as "family" and "brand" can also be thought of as values. Thus, the definition of value used in the present study is as follows: "Values a) are concepts or beliefs; b) pertain to desirable objects, end states, or behaviors; c) transcend specific situations; d) guide selection or evaluation of behavior, things, and events, and e) are ordered by relative importance" (Ceja et al., 2010, p. 8).

1 It is important to mention the work by Rokeach (1973) regarding the theory of values; indeed, Schwartz and Bilsky (1987) base part of their work on his seminal work (Rokeach, 1973, 1979).

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An important aspect of the above definition is that values are relatively stable across time and situations, which differentiates them from other more contextual constructs such as attitudes. Psychologists have agreed that values are abstract psychological concepts that lie at the foundation of more concrete psychological constructs, such as interests, preferences, and attitudes (Rokeach, 1973). Values are strongly linked to the individual's or organization's identity (Rokeach, 1973). Accordingly, they transcend specific situations and are applied more generally to guide organizational behavior and decision making (Shwartz and Blisky, 1987). Values are considered as normative rather than positive states; they guide stakeholders to what ought to be rather than what is (Rokeach, 1973). In other words, "values specify an individual's personal beliefs about how he or she `should' or `ought' to behave" (Meglino and Ravlin, 1998, p. 354).

Types of Values

It is widely accepted that values can be classified and hierarchically ordered (Lyons, Higgins, and Duxbury, 2010). For example, Meglino and Ravlin (1998) present an interesting classification of values that is consistent with the definition of value that we use in the present research paper. According to Meglino and Ravlin (1998), there are three kinds of values: values referred to as objects or outcomes (e.g., the value an employee places on quality or excellence); terminal values (e.g., self-sufficient end-states a person is willing to achieve, such as happiness or success); and instrumental or behavioral values (e.g., the behaviors that facilitate the attainment of terminal values, such as altruism or optimism). Likewise, according to the Aristotelian sense of "good" taken from his Nicomachean Ethics (Nic Eth. II, 1104 b 30 ff.), values can be naturally ordered between three senses of "goodness": values can be good or honest in themselves (i.e., noble values, such as virtues); useful (e.g., teamwork, communication); or pleasurable (e.g., creativity, quality). According to Aristotle, the highest values in the natural hierarchy of "goodness" are the noble values (i.e., those that are good or honest in themselves); within the noble values, we find virtues that can be defined as the disposition to act in order to achieve a happy life (Rus-Rufino, 2009).2 It is important to emphasize that not all noble values have to be virtues; for instance, the family can be regarded as a noble value as long as it is considered "good in itself." Likewise, the useful and pleasurable values are subordinate to noble values. The classification and hierarchical order of values encountered in the literature of values enables individuals and organizations to identify value priorities in order to reconcile conflicts that might emerge among competing values (Shwartz and Bilsky, 1987; Rokeach, 1973).

Moreover, there is a distinction between explicitly stated values and implicit values. For instance, Osborne (1991) explains the use of corporate value statements and the term espoused values, which indicates the materialization of values (Thornbury, 2003). Espoused values that are expressed in company statements are usually legitimized by the top management; hence they are part of a top-down process (Lencioni, 2002). In this sense, there are several processes through which contemporary organizations promote and transmit espoused values to their stakeholders, including formally stating them on their websites or in their mission statements; initiating conducive reward and recognition systems; offering opportunities for interpersonal interaction; forming empowered, cohesive work groups; and establishing open communication

2 Given the scope of the present study and space constraints, and considering the amount of work that has been developed on the notion of virtue, we will not describe it in more detail. However, readers interested in learning more about the concept of virtue are advised to review the work of Thomas Aquinas (see Summa Theologiae I-II, pp. 55-67) and the more contemporary work by MacIntyre (1984), After Virtue.

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